ISLAMABAD: The Ministry of Energy has informed the Economic Coordination Committee (ECC) of the Cabinet that the sale of gas from Mamikhel discovery to third party would not only help reduce circular debt but would also increase investment in the up-stream sector.

The ECC meeting presided over by Finance Minister Ishaq Dar was submitted a summary by the Ministry of Energy (Petroleum Division) that TAL Joint Venture may be allowed sale of gas from Mamikhel South discovery to third party, which was approved after discussion.

The ministry informed the ECC that the TAL block is located in Zone-II in Khyber-Pakhtunkhwa whose exploration license was granted in 1999 having working interest ownership (i) MOL 8.4 per cent (Operator), (ii) OGDCL 27.76 per cent, (iii) PPL 27.76 per cent, (iv) GHPL 15 per cent, and POL 21 per cent.

A supplemental to Petroleum Concession Agreement (PCA) was signed on 28th August 2015 to allow conversion to the Petroleum Policy2012. However, pursuant to the CCI decision 2017, the 2012 Petroleum Policy was further amended to include the imposition of windfall levy on oil/ condensate to PCAs executed under 1994 and 1997 petroleum policies.

All the exploration and production companies including TAL Joint Venture were accordingly advised to submit supplemental agreements to incorporate the amendments in PCAs, signed under 1994/ 1997 polices, for execution within the stipulated time failing which the working interest owners will not remain eligible for gas price incentives.

The companies challenged the matter in Islamabad High Court (IHC) and obtained stay orders against the decision and since then the matter is subjudice. On the instructions of the High Court, the matter is being referred to the CCI for a reconsideration of its earlier decision.

A new discovery namely, Mamikhel South was made in the TAL Block on 14th July 2020 with a gas flow of 20 MMSCFD and condensate flow of 4,300 barrel per day. A development and production lease for three years was granted with effect from 14th January 2021.

2P Recoverable Reserves for gas are 16.1 BCF and 2.6I MMSTB of condensate. However, due to ongoing litigation, the field could not be put on production.

With a view to bring the field on production, a summary for the ECC was processed proposing allocation of gas to the SNGPL which was withdrawn based on verbal requests of JV Partners. Subsequently, several meetings were convened with the working interest owners on the early production and sale of gas. Now M/s MOL has indicated that they have concluded an arrangement for 3rd party buyer for the sale of gas from Mamikhel South field under Article I0.1 (iii) of PCA, which inter-alia reads as “For Zone I&II the working interest owners will be free to use the Natural Gas or to sell it to any buyer, as they wish.

Relevant abstract of TAL PCA is attached herewith. The case has been thoroughly examined and legal opinion was also obtained wherein stance of M/s MOL for sale of gas to 3rd party was supported.

It is noted that this is the first time a company has approached for involving Article 10.1 (iii) of the PCA.

As in the above case, the working interest owners has indicated for selling the gas to 3rd party which will result in windfall levy on gas (40 per cent of price over 2012 Petroleum Policy price) (Rs5 billion assuming $9/MMBTU price for 3rd party sale) to the government. The provincial government would also receive higher royalty due to higher gas price (Rs1.5 billion assuming $9/MMEITG price for 3rd party sale). Around 4,300 barrel per day of condensate will also be available.

Moreover, this would encourage investment in upstream sector resulting in more discoveries in the area. There will be immediate availability of gas (20 Mmcfd) which would also result in import substitution of around $ 241 million assuming LNG price@ $ 15/MMBTU.

State-Owned Entities (SOEs) have around 70 per cent working interests in the TAL exploration license, which would indirectly benefit the government in the form of increased dividends and taxes.

The ECC was further stated that this will also be an opportunity to enable private sector participation and arrest the circular debt. The meeting was further informed that working interest owners have expressed their intent for early monetization to ensure timely payments.

Copyright Business Recorder, 2023